Find any ONE situation in business performance that are using Present Value Annuity using the online...
Find any ONE situation in business performance that are using Present Value Annuity using the online Google. From the situation, you required to answer the questions below.
i. What is the frequency conversion that have been use, and explain it?
Homework Answers
In USA, corporates often issue bonds to fund their business where coupons are paid semi-annually. So price of the bond is determined using Present Value Annuity.
As the bonds are semi-annual, the frequency conversion factor is 2. So, rates for the period is half of the nominal annual rate and number of period is doubled.
That is, r = Rannual /2 and t = 2 * number of years
So, price of a bond= Present Value Annuity of coupons with rate r and t periods.
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